Economic Cost of Climate Change - IEA-ETSAP | … Cost of Climate Change in Europe Outcome of the...

2/6/2010

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CENTER FOR ECONOMIC STUDIES

KATHOLIEKE UNIVERSITEIT LEUVEN

Economic Cost of Climate Change

in Europe

Outcome of the PESETA Project

Denise Van Regemorter

IPTS Seville and KULeuven Belgium

Joint TERI ETSAP Workshop

Delhi, January 21-22 2010



• What are the economic consequences of

climate change in Europe?

– overall order of magnitude

– distribution (space, time, sector)

• Related to mitigation and mainly, adaptation

policies

Question of Interest

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The PESETA Project

• PESETA : Projection of Economic impacts of climate change in Sectors of the European union based on boTtom-up Analyses

• Main purpose: Quantitative, multi-sectoral assessment of the impacts in value of climate change in Europe

To support policymakers

• JRC funded project– largely based on past DG Research-funded projects

(PRUDENCE, DINAS-Coast, cCASHh, NewExt,…)



Project partners

• Climate scenarios: DMI, CRU

• Five sectoral assessments:

• Agriculture: U. Politécnica de Madrid

• Human health: AEA Technology

• River basin flooding: JRC/IES

• Coastal systems: FEEM/Southampton U.

• Tourism: U. Maastricht-ICIS

• Coordination and integration into CGE model: JRC/IPTS

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• Damage = a Temperature b

• where a and b are parameters

• Main limitations for adaptation insights:

• use results from literature, from different

and possibly inconsistent climate scenarios

• only mean temperature and precipitation

are considered

• lack of geographical resolution

General approach in most literature (top-down)



The general approach in the

project (bottom up)• Integrated economic impact assessment, with as

starting point physical impact estimates based on– detailed process modelling

• Agriculture, DSSAT crop model

• River basin flooding, LISFLOOD hydrological model

• Coastal systems, DIVA model

– reduced-form exposure-response functions• Tourism

• Human Health

• Sectoral models provide direct effects estimates

• Overall effects (direct + indirect) assessed with a computable general equilibrium model of Europe

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Socioeconomic scenario: GDP, population assumptions

Agriculture

model

Coastal

Systems

model

River

Flooding

model

Tourism

model

Stage 1:

Modeling

future

climate

Physical

impacts

agriculture

Physical

impacts

coasts

Physical

impacts

floods

Physical

impacts

tourism

Stage 2:

Modeling

physical

impacts

Stage 3:

Modeling

economic

impacts

Climate model

General Equilibrium model

Climate data

(T, P, SLR)

Economic

impacts

Valuation

agriculture

impacts

Valuation

coasts

impacts

Valuation

floods

impacts

Valuation

tourism

impacts

Socioeconomic scenario: GDP, population assumptions

Agriculture

model

Coastal

Systems

model

River

Flooding

model

Tourism

model

Agriculture

model

Coastal

Systems

model

River

Flooding

model

Tourism

model

Stage 1:

Modeling

future

climate

Physical

impacts

agriculture

Physical

impacts

coasts

Physical

impacts

floods

Physical

impacts

tourism

Physical

impacts

agriculture

Physical

impacts

coasts

Physical

impacts

floods

Physical

impacts

tourism

Stage 2:

Modeling

physical

impacts

Stage 3:

Modeling

economic

impacts

Climate model


Climate data

(T, P, SLR)

Economic

impacts

Climate model


Climate data

(T, P, SLR)

Economic

impacts

Valuation

agriculture

impacts

Valuation

coasts

impacts

Valuation

floods

impacts

Valuation

tourism

impacts

Valuation

agriculture

impacts

Valuation

coasts

impacts

Valuation

floods

impacts

Valuation

tourism

impacts

Valuation

agriculture

impacts

Valuation

coasts

impacts

Valuation

floods

impacts

Valuation

tourism

impacts



Selected Climate Scenarios

• 2011-2040 period: A2 IPCC SRES scenario

data from the Rossby Center

• 2071-2100 period: data from PRUDENCE

– A2, B2 IPCC SRES scenarios

– 2 global circulation models, GCMs (HadCM3,

ECHAM4)

– 2 regional climate models, RCMs (HIRHAM,

RCA

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Temperature 3.9°C (A2 Hadley) 5.4°C (A2 Echam)



2.5°C 3.9°C 4.1°C 5.4°C

World population in 2100 (1012

) 10.4 15.1 10.4 15.1

World GDP in 2100 (1012

, 1990US$) 235 243 235 243

CO2 Concentration (ppm) 561 709 561 709

Δ Temperature (ºC)*

World 2.4 3.1 2.3 3.1

EU‡ 2.5 3.9 4.3 5.4

Northern Europe 2.9 4.1 3.6 4.7

British Isles 1.6 2.5 3.2 3.9

Central Europe North 2.3 3.7 4.0 5.5

Central Europe South 2.4 3.9 4.4 6.0

Southern Europe 2.6 4.1 4.3 5.6

Δ Precipitation (%)*

EU‡ 1 -2 2 -6

Northern Europe 10 10 19 24

British Isles -5 -2 10 5

Central Europe North 3 1 6 -1

Central Europe South 2 -2 -4 -16

Southern Europe -7 -15 -13 -28

Sea Level Rise (high climate sensitivity) (cm) 49 56 51 59

Scenarios

*Increase in the period 2071–2100 compared to 1961–1990. ‡European regions: Southern Europe (Portugal, Spain,

Italy, Greece, and Bulgaria), Central Europe South (France, Austria, Czech Republic, Slovakia, Hungary, Romania, and

Slovenia), Central Europe North (Belgium, The Netherlands, Germany, and Poland), British Isles (Ireland and UK), and

Northern Europe (Sweden, Finland, Estonia, Latvia, and Lithuania).

Four 2080s Scenarios

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Grouping of

countries



Number of cases considered

Climate Scenarios Impact

Category 2020s 2080s

Variants Total number of cases analysed

Agriculture 1 4 - 5

River

Floods - 4 - 4

Coastal

Systems 1 4

No SLR Low/medium/high SLR

IPCC low/high SLR

Non adaptation/optimal adaptation

72

Tourism - 4 Alternative demand assumptions 12

Human

Health 1 4 Two exposure-response functions 8

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Impact from physical models (1)

• Agriculture– site-evidence on average yield change across Europe, DSSAT

model

– yield changes, production losses

• Coastal system (with DIVA model)– impact on coastal erosion, coastal flood impacts, changes in

wetlands, flood effects in river mouths, sea water intrusion and salinisation.

– economic costs due to land and wetland loss and the number of people flooded

• River floods– change in frequency and intensity of river floods by LISFLOODS

model

– valuation of damage to buildings



Impact from physical models (2)

• Tourism– estimation of the role of climate through TCI (tourism climate

index) on bed nights

– impact of climate change on number of bed nights valued with the EU average expenditure data per bed night

• Health– changes in direct temperature related mortality

• Adaptation– in all models private adaptation (e.g. agriculture way of

production, migration)

– no public adaptation (except for coastal system, dikes building and beach nourishment)

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Agriculture

Crop yield

changes

(t/Ha),

productio

n losses

and gains



Agriculture: crop yield changes (%)

compared to 1961-1990

B2 HadAM3h A2 HadAM3h B2 ECHAM4 A2 ECHAM4

2.5°C 3.9°C 4.1°C 5.4°C

Northern Europe 37 39 36 52 62

British Isles -9 -11 15 19 20

Central Europe North -1 -3 2 -8 16

Central Europe South 5 5 3 -3 7

Southern Europe 0 -12 -4 -27 15

EU 3 -2 3 -10 17

2025

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Coastal Systems

people flooded (1000s/year) in main scenarios with

high climate sensitivity, without adaptation

B2 HadAM3h A2 HadAM3h B2 ECHAM4 A2 ECHAM4 A2 ECHAM4

2.5°C 3.9°C 4.1°C 5.4°C high SLR

Northern Europe 20 40 20 56 272

British Isles 70 136 86 207 1,279

Central Europe North 345 450 347 459 2,398

Central Europe South 82 144 85 158 512

Southern Europe 258 456 313 474 1,091

EU 775 1,225 851 1,353 5,552



River Floods

Change in

economic

damage (red

means a decrease)

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Human Healthaverage annual heat-related (left) and cold-

related (right) death rates (per 100,000

population) 3.9°C scenario

Note: using climate-dependent health functions (no acclimatisation)



Tourism:TCI scores in summer

Ideal

Excellent

Very good

Good

Acceptable

Marginal

Unfavourable

Ideal

Excellent

Very good

Good

Acceptable

Marginal

Unfavourable

Ideal

Excellent

Very good

Good

Acceptable

Marginal

Unfavourable

control

5.4°C

4.1°C

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Tourism

Change in expenditure receipts (million €)

B2 HadAM3h

2.5ºC

A2 HadAM3h

3.9ºC

B2 ECHAM4

4.1ºC

A2 ECHAM4

5.4ºC

Norhern Europe 443 642 1,888 2,411

British Isles 680 932 3,587 4,546

Central Europe North 634 920 3,291 4,152

Central Europe South 925 1,763 7,673 9,556

Southern Europe -824 -995 -3,080 -5,398

EU 1,858 3,262 13,360 15,268



• Static analysis: evaluation of the economic effects of future climate change (projected for the 2080s) on the current economy, as of 2010.

• Only market costs included

• Assuming there is no public adaptation, so that priorities for adaptation within the EU can be explored

Integration of sectoral impacts into the

CGE GEM-E3 model

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GEM-E3: a General Equilibrium Model for Energy-Economics-Environment interactions

• GEM-E3: the standard European version covers the 27 EU countries (except Luxemburg, Malta and Cyprus)

• The model has been developed as a multi-national collaboration project, cofunded by the EU Commission, DG Research.

• follows the computable general equilibrium methodology,– demand and supply functions derived from microeconomic

behaviour of economic agents (optimisation of their objective)

– markets clear through prices and prices are such that at equilibrium all agents optimise their behaviour

– covers the entire economic activity within a region



The GEM-E3 model (2)• simultaneously multinational and specific for each

region, markets clear at country or EU level, where appropriate

• extensive environmental dimension, inclusive its

transfrontier characteristics and possibility of feedback

from the environment on the economy

• wide variety of policy instruments (standards, taxes,

permits, at EU and country level, different allowance

schemes)

• oriented towards medium & long term macroeconomic

implications of policies (general, energy, environment)

• follows a time forward path (dynamic recursive over

time)

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Producers Consumers

Capital

Imports Exports

Revenues InvestmentInvestmentFinancing

Investment

Goods Market Equilibrium

Labour Market Equilibrium

Rate of return

Income flows and Transfers

PRODUCERS GOVERNMENT CONSUMERS FOREIGN

SURPLUS OR DEFICIT OF AGENTS

allocation

Maximising Profits Maximising Utility

ENVIRONMENT



Modelling of physical impacts

in GEM-E3• Agriculture

– yield changes interpreted as Total Factor Productivity change (no production factors changes)

• River floods– damage to residential buildings (80%) as obliged expenditure by household

– damage to industrial sectors (20%), as production and capital losses

• Coastal system– floods leads to capital losses (and so additional expenditure

– migration cost (for household)

• Tourism– redistribution of tourism within Europe leads to changes in exports

– induces reaction on the supply capacity

• For both river floods and coastal systems, the additional expenditure does not provide any welfare gain: it represents a welfare loss, since households are forced to it due to climate change.

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Annual damage

in terms of GDP changes (million €)

-70000

-60000

-50000

-40000

-30000

-20000

-10000

0

10000

Southern

Europe

Central Europe

South

Central Europe

North

British Isles Northern

Europe

EU

2.5°C

3.9°C

4.1°C

5.4°C

5.4°C, 88 cm SLR



Annual damage

in terms of Welfare changes (%)

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

Southern

Europe

Central Europe

South

Central Europe

North

British Isles Northern

Europe

EU

2.5°C

3.9°C

4.1°C

5.4°C

5.4°C, 88 cm SLR

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Sectoral decomposition

of welfare changes (%)

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

2.5

oC

3.9

oC

5.4

oC

5.4

ioC

2.5

oC

3.9

oC

5.4

oC

5.4

ioC

2.5

oC

3.9

oC

5.4

oC

5.4

ioC

2.5

oC

3.9

oC

5.4

oC

5.4

ioC

2.5

oC

3.9

oC

5.4

oC

5.4

ioC

2.5

oC

3.9

oC

5.4

oC

5.4

ioC

Southern Europe Central Europe South Central Europe North British Isles Northern Europe EU

Tourism

River floods

Coastal systems

Agriculture



Conclusion

• Gives a first insight in impact of climate change in Europe but uncertainty still very great at all steps of the research (sectoral and global level) full results in http://ftp.jrc.es/EURdoc/JRC55391.pdf

• Innovative aspects of the project:– High space-time resolution of climate data (daily, 50 km)

– Use of detailed physical impact models for each impact category

– Integration of all sectoral results in CGE model

• Further research is needed, concerning:– Costs and benefits of adaptation

– Cross-sectoral consistency

– Land use modelling

– Monte Carlo analysis for uncertainty

• FP7 research project (ClimateCost) for extension of these results: better integration and geographic extension

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